If you do not know the error level, the position can easily turn into hope.
Academy
Stop-loss: error limit first, profit idea later
A stop-loss is not punishment for a bad decision. It is a pre-planned point where you protect capital and stop defending the scenario.
The wider the stop-loss, the smaller the position should be for the same risk.
An exit decision under pressure is harder than a decision written earlier.
How to use it
A stop-loss should come from the scenario, not from a wish
A good error limit says: what must happen for me to accept that my idea stopped working. It should not be set randomly.
Checklist before a decision
- Where is the level that invalidates the scenario?
- How much will I lose if the stop-loss is triggered?
- Is the position still reasonable at this stop distance?
Typical mistakes
- Moving the stop only to avoid closing a loss.
- Setting a stop too tightly without room for volatility.
- No plan for what to do after exiting the position.
Next step
Size the position as if the stop-loss will be hit.
If that loss is too large, the problem is not the stop-loss, but the position size.